Question
What is the expected return and risk on an equally weighted portfolio of stocks A, B, and C? There are 3 possible economic states: Boom
What is the expected return and risk on an equally weighted portfolio of stocks A, B, and C? There are 3 possible economic states: Boom with 15% probability; Normal with 45% probability and Recession has the probability of 40%. Stock A: Returns from Stock A are 19%; 11% and -23% in three states Boom, Normal, and Recession respectively. Stock B: Returns from Stock B are 9%; 8% and 5% in three states Boom, Normal, and Recession respectively. Stock C: Returns from Stock C are 6%; 13% and 25% in three states Boom, Normal, and Recession respectively. A) Expected return on the portfolio B) Risk of the portfolio
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